16
Investor Presentation Q3 2018
Investor
Presentation
Q3 2018
2
Disclaimer
This document has been prepared by Telecom Egypt (the “Company”) solely for the use at the analyst/investor presentation, held in connection with the Company. The information
contained in this document has not been independently verified. This document contains statements related to our future business and financial performance and future events or
developments involving Telecom Egypt that may constitute forward-looking statements. Such statements are based on the current expectations and certain assumptions of Telecom
Egypt's management, of which many are beyond Telecom Egypt's control. Such assumptions are subject to a number of risks and uncertainties. Should any of these risks or
uncertainties materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results may (negatively or positively) vary materially from those described
explicitly or implicitly in the relevant forward-looking statement. Telecom Egypt neither intends, nor assumes any obligation, to update or revise these forward-looking statements in
light of developments, which differ from those anticipated.
This document does not constitute an offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares of the Company and neither it nor any
part of it shall form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. This presentation has been made to you solely for information purposes
and is subject to amendment. This presentation (or any part of it) may not be reproduced or redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any
other person or published in whole or in part for any purpose without the prior written consent of the Company.
3
9M 2018 results highlightsOperational growth in line with the strategy
17.4bn+ 32% YoY
5.3bn+36% YoY
3.5bn+1% YoY
Revenue (EGP bn)
EBITDA (EGP bn)
Customers (mn )
Net profit (EGP bn)
9M revenue lands at 17.4bn with a 32% YoY
growth fueled by the monetization of our wholesale
investments, the continuous growth of fixed data
services (+33% YoY) and the contribution of mobile.
Q3-18 revenue includes +2bn in revenue from the
conclusion of the Bharti deal and the schools’
connectivity project.
Our customer base expands on all fronts
including fixed voice. Mobile subs continue to grow
despite levy on new SIMs introduced in July 2018.
EBITDA margin beats guidance at 31% on cost efficiency and high margin revenue with cost
control on employee and call costs offsetting the
hike in advertising expenses. Normalized EBITDA
margin stands at the higher end of our guidance.
Operating profit grew 37% YoY as EBITDA
growth outpaced the 49% YoY hike in depreciation
and amortization.
Net profit achieved stable YoY figure &
reversed the H1 18% YoY decline, in spite of the
13% YoY decline in income from Vodafone and the
4x higher interest & finance cost.
EBITDA margin of 31% Net profit margin of 20%
9M 2018: Exceptional revenue growth supports
bottom line
Fixed
Mobile
Voice Data
7.6+10% YoY
5.0+29% YoY
3.6+1.3 million net additions ytd
4
Q3 2018 results highlightsStrategic partnership contributes to the substantial revenue growth of 65% YoY
7.2bn+65% YoY/+35%QoQ
2.0bn+78% YoY/ +14% QoQ
1.4bn+50% YoY/ +13% QoQ
Revenue (EGP bn)
EBITDA (EGP bn)
Customers ( mn )
Net Profit(EGP bn)
Fixed
Mobile
Voice Data
Strong revenue growth momentum with a
65% increase YoY: Ongoing solid growth in data services
revenue (+45% YoY in Home & Enterprise).
Enterprise Solutions revenue increased
114%YoY on the recognition of EGP482mn
related to the schools’ connectivity project.
The conclusion of the Bharti Airtel deal
securing an on-spot revenue of EGP 1.6bn.
EBITDA grew 78% YoY recording a
margin of 28% on high margin revenue,
employee cost control and the revision of the
national roaming agreement offsetting the seasonal
increase in advertising expenses.
Net profit grew 50% YoY as operational
growth neutralizes the hike in depreciation &
amortization (46% YoY) and higher interest &
finance cost.
EBITDA margin of 28% (+206bps YoY, - 529bps QoQ) Net profit margin of 20% (-192bps YoY, - 400bps QoQ)
Q3 2018: Strong operational profit drives growth
7.6+10% YoY
5.0+29% YoY
3.6+1.3 million net additions ytd
5
Strategic partnership with Airtel & schools projectshowcase our ability to rapidly monetize our investments
One time revenue of
USD90mn
USD54mn
Securing recurring
revenue through ancillary
services over the IRUs life
time.
Granting IRUs (indefeasible right of use)
along with capacities on long term basis
to Bharti Airtel on some of Telecom Egypt
cables(MENA,TE North,SMW4,&AAE1).
Schools connectivity project stems out from Telecom Egypt’s national
played role in the initiative of reforming the education system in Egypt.
Bharti Airtel deal Schools connectivity project
(EGP 1.6bn)
EBITDA margin in early
30s
2,550 schools connected
Initial revenue of
EGP482mn for infrastructure connectivity
Remaining utilization of MENA Cable at higher
marginsfrom FBB subscriptions Further
monetization
High margin as the corresponding
costs is mainly CapEx
6
Highlights of the main events of the quarterBecoming a truly total telecom operator and swift delivery on strategic projects
Events in the quarter Subsequent to the quarter6 Aug / 2 Oct: Strategic partnership with Airtel for global submarine cable systems wherein, Airtel will get IRUs on MENA Submarine Cable and TE North Cable Systems. Airtel will also take large capacities on a long-term basis on two new state-of-the-art Cable Systems (SMW5 & AAE1). The MOU was formalized by end of September.
8 Aug: TE signed the first MoU to provide Etisalat Misr with virtual fixed voice services. Under this MoU, Telecom Egypt, through its nationwide fixed network, will enable Etisalat Misr to provide its customers with fixed voice services.
23 Sept: TE BoD approve the acquisition of 50% of its subsidiary, Egyptian International Submarine Cable Company “EISCC” at a value of USD 15mn.
17 Sept: TE concludes the acquisition of MENA Submarine Cable from Orascom Investment Holding with a total enterprise value of USD 90mn. USD 40mn of which represent the equity value of MENA Cable and the remainder is its outstanding debt.
14 Jul: TE signed an MOU with Liquid Telecom that will enable the
latter to shortly complete Africa’s terrestrial fiber network stretching all
the way from Cape Town, South Africa to Cairo in Egypt.
18 Oct: TE signed a USD 500mn medium-term syndicated loan, which will be used to support its capital and operational expenditure, and refinance existing short-term facilities. First Abu Dhabi Bank PJSC (FAB) and Mashreq Bank PSC (Mashreq) were the Joint Bookrunnersand Mandated Lead Arrangers of the facility.
21 Sept: Launch of WE’s “one bill” offering under the name “indigo PLUS ” marking WE’s transformation to a truly fully integrated total telecom operator bundling mobile plus fixed data and voice services.
7
Revenue
(EGP mn)EBITDA (EGP mn)
Net profit(EGP mn )
Financial highlights
Operating Profit(EGP mn)
1,145
1,7872,036
3,923
5,329
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+77.8%
+14.0%
+35.8%
9631,284
1,448
3,483 3,506
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+50.4%
+12.8%
+0.7%
636
1,2491,395
2,616
3,593
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+119.5%
+11.7%
+37.3%
4,3895,343
7,233
13,125
17,358
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+64.8%
+35.4%
+32.2%
8
34%
14%16%
19%
17%
9M 2018
1,2831,140 1,111
3,795
3,347
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
-13.4%
-2.5%
-11.8%
29%
16%
11%
15%
29%
Q3 2018
Revenue by business unitRetail services & specifically data drives revenue growth
Home &
Consumer DomesticEnterprise
International
Carriers Affairs
International
Customers & Networks
Retail 9M revenue grew 43% YoY in 9M 2018 contributing 59% to total revenue growth.
Home & Consumer 9M revenue rose 46% YoY mainly on data services which contributed 32% to total revenue growth.
Mobile revenue, despite being in its early stages, is already contributing a low single digit to the total revenue and a
high single digit to the retail revenue in 9M 2018.
Enterprise Solutions predominantly grew on the hike in complimentary access services In Q3 2018 that is related to
the schools projects (EGP482mn).
Wholesale 9M services grew by 24% YoY mainly as a result of the deal with Bharti Airtel, which contributed EGP1.6bn.
Excluding such, wholesale revenue would have grown by 2% as growth in domestic wholesale was offset by the decline
in ICA.
ICA declined both on decreasing low margin transit revenue and the decline in international incoming calls, worth noting
is that Q3 international calls were flat QoQ and YoY.
Domestic wholesale grew by 12% YoY on the continuing demand for infrastructure leasing by the domestic mobile
operators, the QoQ decline of 27% is mainly the result of the recognition of IRUs in Q2 2018, which are volatile in
nature.
1,418
1,935 2,085
4,008
5,850
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+47.0%
+7.8%
+45.9%
537629
1,151
1,724
2,363
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+114.3%
+83.1%
+37.1%
776
1,085
788
2,449
2,753
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+1.5%
-27.4%
+12.4%
375 554
2,099
1,150
3,046
Q3 2017 Q2 2018 Q3 2018 9M 2017 9M 2018
+459.5%
+278.8%
+164.9%
9
• Total call cost declined as percentage of normalized revenue on the decrease of illegal
bypass and the revision of the national roaming agreement.
• Employee cost to normalized revenue similarly declined.
• The spike in S&D relates to higher advertising expenses, which were close to absent the
prior year.
Income statement (9M 2018)
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
Reve
nu
e
EB
ITD
AO
the
r
OP
EX
Net p
rofit
• Total revenue grew by 32% manifesting Telecom Egypt’s execution ability.
• Home & Consumer business unit led the growth in revenue, contributing 44% to total
growth fueled by the rise in data, which represents 74% of total BU revenue.
• Total revenue is boosted by the contribution of the Bharti Airtel deal and schools’
connectivity project bringing together +EGP2bn upside to the top line.
Exp
en
se
s
Non-o
pera
tio
nal
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
* EPS excludes employees profit share
• EBITDA margin grew 81bps YoY through strict cost control and high margin
revenue, partially offset by higher advertising costs (4% of revenue up from 1% in
9M17).
• Normalizing EBITDA in Q3 would lead to a margin at the higher end of our
guidance.
• Amortization spiked due to absence of 4G license amortization prior to Sept. 2017.
• Depreciation grew 25% YoY on increased investment in our 4G mobile network and
the revamp of our broadband infrastructure in Egypt.
• The hike of interest expense is a result of the capitalization of interest related to
payment of the mobile license prior to Sept. 2017.
• The effective interest rate reached 8% in spite of high EGP lending rate due to
successful conversion of a portion of debt into lower interest USD loans.
• A decrease of 13% YoY in the income from investments related to the one-offs
taken by Vodafone Q1-18.
• NPAT landed at EGP 3.5bn, almost stable YoY as operational growth offset the 4x
higher finance and interest cost along with Vodafone’s income decline.
• Normalizing for the decline in Vodafone’s income leads to a 7% YoY rise in NPAT.
In EGP mn 9M 2018 9M 2017 YoY Q3 2018 Q2 2018 Q3 2017 QoQ YoY
Revenue 17,358 13,125 32% 7,233 5,343 4,389 35% 65%Home & Consumer 5,850 4,008 46% 2,085 1,935 1,418 8% 47%Enterprise Solutions 2,363 1,724 37% 1,151 629 537 83% 114%Domestic Wholesale 2,753 2,449 12% 788 1,085 776 -27% 2%International Carriers Affairs 3,347 3,795 -12% 1,111 1,140 1,283 -3% -13%International Customers & Networks 3,046 1,150 165% 2,099 554 375 279% 459%
Total employee cost (3,637) (3,289) 11% (1,263) (1,173) (1,121) 8% 13%Call costs (3,172) (3,113) 2% (1,079) (1,079) (1,082) 0% 0%CoGS (excl. above expenses) (3,807) (2,165) 76% (2,226) (828) (809) 169% 175%S&D (excl. salaries, D&A) (1,018) (295) 245% (455) (362) (133) 26% 242%G&A (excl. salaries, D&A) (394) (340) 16% (174) (115) (98) 52% 79%
EBITDA 5,329 3,923 36% 2,036 1,787 1,145 14% 78%Margin 31% 30% 81 bps 28% 33% 26% (529 bps) 206 bps
Other (expense) / income 225 10 2052% 84 106 (12) -21% -786%
Depreciation (1,515) (1,216) 25% (578) (494) (451) 17% 28%Amortization (446) (101) 341% (146) (149) (46) -2% 218%
Operating profit 3,593 2,616 37% 1,395 1,249 636 12% 119%Margin 21% 20% 77 bps 19% 23% 14% (409 bps) 481 bps
Income from investments 1,551 1,777 -13% 677 587 602 15% 13%
Net finance (cost) / income (268) (167) 60% (123) (64) (39) 91% 218%Net interest (expense) / income (608) (73) 728% (190) (207) (85) -8% 123%
Tax (758) (667) 14% (311) (279) (150) 11% 107%
Net Profit 3,506 3,483 1% 1,448 1,284 963 13% 50%Margin 20% 27% (633 bps) 20% 24% 22% (400 bps) (192 bps)
EPS 2.05 2.04 1% 0.85 0.75 0.56 13% 50%
10
• Stable Call costs QoQ despite growing mobile revenue reveals favorable revision of
national roaming agreement.
• Seasonal hike of advertising & marketing expenses to 5% of sales vs.1% in Q3 2017.
• Employee costs control continue representing 22% of normalized revenue.
Income statement (Q3 2018)
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
Reve
nu
e
EB
ITD
AO
the
r
OP
EX
Net p
rofit
• Retail services contributed 45% of total revenue. Both the Home & Enterprise
segments contributed almost equally to retail revenue growth (+66% YoY), the latter
boosted by the schools connectivity project.
• Wholesale revenue’s performance was boosted by the Bharti deal recording a 64%
YoY growth, excluding such revenue would have declined by 2% as Q3 2017
included higher low margin transit revenue.
Exp
en
se
s
Non-o
pera
tio
nal
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
* EPS excludes employees profit share
• EBITDA reached EGP 2bn growing 78% YoY, dialing a margin of 28% weighed on
by higher advertising cost.
• Mobile license amortization, higher Capex investments lead to a 46% YoY D&A
cost.
• Net interest expense grew YoY as interest expense related to the borrowing facility
obtained to pay the mobile license was capitalized prior to Sept. 2017. On A QoQ
basis interest expense declined due to efficient conversion of debt to USD with the
effective interest rate almost halved reaching 7% down from 13%, its peak in Q4
2017.
• Vodafone contributed positively to TE’s bottom line with a 13% YoY growth in our
share of its income.
• NPAT stood at EGP 1.4bn growing 50% YoY driven by strong operational growth
offsetting the increase in interest/finance costs.
In EGP mn 9M 2018 9M 2017 YoY Q3 2018 Q2 2018 Q3 2017 QoQ YoY
Revenue 17,358 13,125 32% 7,233 5,343 4,389 35% 65%Home & Consumer 5,850 4,008 46% 2,085 1,935 1,418 8% 47%Enterprise Solutions 2,363 1,724 37% 1,151 629 537 83% 114%Domestic Wholesale 2,753 2,449 12% 788 1,085 776 -27% 2%International Carriers Affairs 3,347 3,795 -12% 1,111 1,140 1,283 -3% -13%International Customers & Networks 3,046 1,150 165% 2,099 554 375 279% 459%
Total employee cost (3,637) (3,289) 11% (1,263) (1,173) (1,121) 8% 13%Call costs (3,172) (3,113) 2% (1,079) (1,079) (1,082) 0% 0%CoGS (excl. above expenses) (3,807) (2,165) 76% (2,226) (828) (809) 169% 175%S&D (excl. salaries, D&A) (1,018) (295) 245% (455) (362) (133) 26% 242%G&A (excl. salaries, D&A) (394) (340) 16% (174) (115) (98) 52% 79%
EBITDA 5,329 3,923 36% 2,036 1,787 1,145 14% 78%Margin 31% 30% 81 bps 28% 33% 26% (529 bps) 206 bps
Other (expense) / income 225 10 2052% 84 106 (12) -21% -786%
Depreciation (1,515) (1,216) 25% (578) (494) (451) 17% 28%Amortization (446) (101) 341% (146) (149) (46) -2% 218%
Operating profit 3,593 2,616 37% 1,395 1,249 636 12% 119%Margin 21% 20% 77 bps 19% 23% 14% (409 bps) 481 bps
Income from investments 1,551 1,777 -13% 677 587 602 15% 13%
Net finance (cost) / income (268) (167) 60% (123) (64) (39) 91% 218%Net interest (expense) / income (608) (73) 728% (190) (207) (85) -8% 123%
Tax (758) (667) 14% (311) (279) (150) 11% 107%
Net Profit 3,506 3,483 1% 1,448 1,284 963 13% 50%Margin 20% 27% (633 bps) 20% 24% 22% (400 bps) (192 bps)
EPS 2.05 2.04 1% 0.85 0.75 0.56 13% 50%
11
Operating ProfitVariance Analysis – 9M 2018 (YoY)
2,616
3,593
4,232
1,701
348
777
64427
Revenue Provisions9M 17 Opearting
Profit
COGS EmployeeCosts
SG&A Depr & Amort.
188
Other Income/Expen
se
9M 18 Operating
Profit
+37%
Note: All financial figures are in EGP million
12
Operating ProfitQ3 2018 revenue growth outpaces growth in expenditure
636
1,395
2,844
1,414
141
399
227
Q3 17 Opearting Profit
Revenue
3
SG&ACOGS EmployeeCosts
Provisions Depr & Amort.
93
Other Income/Expense
Q3 18 Operating Profit
+119%
Note: All financial figures are in EGP million
13
928
1,883 2,255
4,024
5,128
-
5,220
1,420
780
10%
22%
79%
41%
38%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
-
1,00 0
2,00 0
3,00 0
4,00 0
5,00 0
6,00 0
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018
Capex License Capex/sales
Cash flow analysis
Cash capex(EGP mn)
Net cash from operating activities (EGP mn)
Note: All financial figures reported are based on Consolidated financials under The Egyptian Accounting Standards.
FCFF(EGP mn)
In-service capex
(EGP mn)
1,203 929
3,481 3,563
961
1,881
2,665
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018 Nor 1.9M 2018 Nor 2.9M 2018
* Nor 1: Normalizing for one-off settlement payment to Etisalat of EGP 919mn
** Nor 2: Normalizing for one-off settlement payment to Etisalat & EGP 784mn representing settlement of MENA Cable loan
(569)
74
(2,445)
(1,682)
(4,946)
(4,027)
(2,250)
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018 Nor1. 9M 2018 Nor2. 9M 2018
* Nor 1: Normalizing for one-off settlement payment to Etisalat of EGP 919mn
** Nor 2: Normalizing for one-off settlement payment to Etisalat & EGP 1.777bn for the acquisition of MENA Cable
1,120 1,582 1,624
3,272 3,519
- -
5,220
3,340
-12% 18%
72%
50%
22%
10%
20%
30%
40%
50%
60%
70%
80%
-
1,00 0
2,00 0
3,00 0
4,00 0
5,00 0
6,00 0
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018
Capex License Capex/sales
* Normalizing revenue for Bharti Airtel deal with EGP1.6bn
*
*
14
3,938 2,636 1,174 709 1,189
-489 -418 -2,745
-6,314
-13,694
-3,449 -2,218 1,571 5,605 12,505
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018
Net debt
Total debt Cash Net debt
Balance sheet highlights
FCFE(EGP mn)
Net debt*(EGP mn)
Net debt/ EBITDA*(Based on annualized EBITDA)
Breakdown of capex in-service
76%
11%
6%
6%
1%
9M 2018
Access Network Transmission International cable Customer care Others
-0.8x -0.7x
0.4x
1.1x
1.8x
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018
(634)
13
(152)
1,188 969
1,888
3,665
9M 2014 9M 2015 9M 2016 9M 2017 9M 2018 Nor1. 9M 2018 Nor2. 9M 2018
* Nor 1: Normalizing for one-off settlement payment to Etisalat of EGP 919mn
** Nor 2: Normalizing for one-off settlement payment to Etisalat & EGP 1.777bn for the acquisition of MENA Cable
* Payment received from Bharti in October 2018 of USD 90mn decreased net debt to EGP 10.8bn representing 1.6x net debt to
EBITDA
15
Our performance in contextDelivering on guidance across main KPIs
Revenue Growth
YoY
EBITDA margin (%)
CAPEX / sales (%)
9M 2018
Actual
32%
31%
In-service: 22%*
Cash: 38%*
FY 2018
guidance
High single to low
double digit
Mid to high 20s
In-service: 30-35%
* Normalizing revenue for Bharti Airtel deal with EGP1.6bn
